Commercial Outlook for 2013

Illinois REALTOR® Magazine | January 2013

Commercial Corner

What’s the commercial industry look like for 2013?

Commercial broker, Alex Ruggieri, interviews commercial agents from across the state about the market and what it takes to succeed.

PPolly Oczakolly Oczak Parchem, CCIM
President
Winner’s Edge, Inc., Oak Brook, IL

Q. Polly, you have something of a boutique commercial office. What advice do you have to someone getting started in commercial real estate?

A. Early in my career, I was fortunate to have a great mentor. A great mentor will expose you to all sorts of opportunities that you may not otherwise get when you start out your career in real estate. The other advice is to be confident. Don’t be afraid to speak up and admit that you may not know offhand certain answers to your clients’ questions.

Q. What are some barriers that you have faced being a woman in a predominately male field?

A. Regardless of gender, I believe everyone at some point in their career will have to deal with being stereotyped or have some type of bias against them. As a woman, I often get overlooked for assignments so I have to constantly work to prove myself. If you work diligently, have a strong work ethic, pursue the right opportunities—and luck certainly helps—you will succeed!

photo of commercial property

Q. What do you see happening in commercial real estate in your market?

A. My typical clients are based in the west/southwest suburban Chicago market. They look for or have space ranging from 1,500 to 30,000 square feet. Office landlords continue to have challenges as vacancy rates remain high. Demand for retail space seems to be picking up some steam. However, the term “traditional retail” doesn’t have the relevance it had in previous years.

Traditional retail space owners are open to alternative uses such as medical, recreational, religious and other professionally-related businesses. As for land, owners continue to struggle with declining property values.

“If you work diligently, have a strong work ethic, pursue the right opportunities—and luck certainly helps—you will succeed!” - Polly Oczak Parchem

Lloyd BerryLloyd Berry, CCIM, RPA
Vice President, Director of Operations
Colliers International, Chicago, IL

Q. Lloyd you specialize in office and leasing. How would you describe current market conditions in the Chicago area?

A. The Chicago downtown market is recovering with the recent announcements of corporate relocations by Hillshire Brands (234,000 square feet) and Motorola Mobility (500,000 square feet) from the suburban market to the Central Business District. This is emblematic of an ongoing trend as employers seek younger workers who prefer living downtown for the amenities and services offered there.

The suburban market continues to struggle with an overall vacancy rate ranging from 20 to 24 percent depending upon the submarket. Absorbing this vacancy will take years given the relocation trend mentioned above and very slow job growth in the metropolitan area. Overall asking rental rates remain flat in the $19.80 per square foot range.

Q. How are investment sales in the office market?

A. The Trophy Class A buildings are at the top of the list with local investors such as Sterling Bay working the West Loop market and repurposing older buildings. For example, the property Hillshire Brands leased from Sterling Bay was formerly a printing and distribution building. One of the Class C buildings owned by one of my clients is under contract and will be converted to student housing.

John JoyceJohn Joyce CCIM
Managing Principal
Newmark Knight Frank Epic, Rosemont, IL

Q. John you work a lot with corporations. Why do corporations need to make real estate decisions?

A. On an ongoing basis, corporate users of real estate must evaluate when and where they will occupy space. Sometimes they are expanding, sometimes it’s a contraction, and there are times where acquisition or disposition will be contemplated.

Q. What are the steps to create an initial evaluation?

A. A typical company will consider its facility alternatives based on geography, skilled labor pools, cost of living, education, transportation costs, the quality of life, state sponsored incentives and cost of real estate. A property requirement defining specified criteria will be developed. The next step is to prepare a strategy including how to compare alternatives. In most cases the strategy will be created by the company’s real estate director or a licensed real estate professional.

Q. How does Illinois make it on the list of alternatives?

A. Illinois’ central location, international transportation network, rail line access, cultural diversity, state-of-the-art health care system, world class education including Northwestern, the University of Chicago and the University of Illinois, and high population density leads real estate decision makers to consider this area.

“Illinois’ central location...leads decision makers to consider the area.” - John Joyce

Matt WaveringMatt Wavering
Director of Commercial Brokerage
Coldwell Banker Commercial Devonshire Realty, Champaign, IL

Q. Matt, your specialty is retail, so why would a commercial real estate investor consider purchasing investment grade retail property in a tertiary market such as Champaign County?

A. Primary markets tend to have higher prices thus a lower return on investment. In addition, not all investors have millions of dollars to spend on property. Therefore, secondary or tertiary markets like those in downstate Illinois can offer higher returns with a lower cost of entry. Another factor is competition. Larger markets have more competition for retail space simply due to the size of the market. Therefore, smaller markets generally offer more stability for the simple fact that a tenant has limited options to move and will likely stay in one property for a longer period of time.

Q. What is the current state of the retail real estate segment in Champaign County?

A. As with most of the commercial real estate market, the effects of the recession weighed heavily on local and national retailers alike. We saw a lot of mid-box stores go dark, leave the market or go bankrupt. In addition, many marginal restaurants or high-end retailers closed which left several smaller freestanding and inline vacancies.

Those vacancies left us with a big hill to climb and put retail development at a stand-still. However, since Champaign is a college town, opportunities were quickly taken advantage of as values and rents fell and the market has been steadily improving for the past two years.

Q. What is different about the retail segment now than before the recession?

A. Retailers have adapted to changing consumer habits; therefore, we see a lower demand for mid-sized and big box megastores. Developers are being very cautious about what and where they build.  

 

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Illinois REALTOR®

Alex Ruggieri

Alex Ruggieri, CCIM, MBA, GRI is Senior Investment Advisor with Sperry Van Ness/Ramshaw Real Estate in Champaign. He is a member of the NAR Commercial Committee and served on the IAR Commercial/Industrial/Investment Committee.